Question

Cowboy is expected to (1) pay a cash dividend of $11 per share one year from...

Cowboy is expected to (1) pay a cash dividend of $11 per share one year from now, and (2) dissolve and pay a liquidating dividend of $30.25 per share two years from now. Cowboy is all equity financed with a required rate of return of 10%. What is the stock price per share of Cowboy one year from now?

Homework Answers

Answer #1

present value = future value / (1 + required return)number of years

Stock price 1 year from now = liquidating dividend / (1 + 10%)1

Stock price 1 year from now = $27.50

(Here, we are assuming that the stock price is calculated just after the cash dividend is received. However, if we need to calculate the stock price just before the cash dividend is received, simply add the cash dividend amount to the stock price calculated above. Stock price 1 year from now (just before cash dividend is received) = $27.50 + $11 = $38.50)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A stock is expected to pay a dividend of $2.3 one year from now, and the...
A stock is expected to pay a dividend of $2.3 one year from now, and the same amount every year thereafter. The stock's required return (indefinitely) is expected to be 9.5%. The stock's predicted price exactly 5 years from now, P5, should be $_______________. A stock is expected to pay a dividend of $1.2 one year from now, $1.6 two years from now, and $2.4 three years from now. The growth rate in dividends after that point is expected to...
A company is expected to pay a dividend of $1.49 per share one year from now...
A company is expected to pay a dividend of $1.49 per share one year from now and $1.93 in two years. You estimate the risk-free rate to be 4.2% per year and the expected market risk premium to be 5.6% per year. After year 2, you expect the dividend to grow thereafter at a constant rate of 5% per year. The beta of the stock is 1.4, and the current price to earnings ratio of the stock is 17. What...
5.5 Firm X is priced at $10 per share. Expected dividend next year is $1 per...
5.5 Firm X is priced at $10 per share. Expected dividend next year is $1 per share, and the expected stock price next year is $11. Therefore, stock is expected to earn (11 + 1 – 10)/10 = 20%. This implies that the company has required rate of return that is also 20%. (True / False) 5.6 When ROE < k, increasing _______ should increase the intrinsic value of equity.               a. Retention ratio               b. Dividend payout               c....
General Importers announced that it will pay a dividend of $3.65 per share one year from...
General Importers announced that it will pay a dividend of $3.65 per share one year from today. After that, the company expects a slowdown in its business and will not pay a dividend for the next 4 years. Then, 6 years from today, the company will begin paying an annual dividend of $1.75 forever. The required return is 11.4 percent. What is the price of the stock today
XYZ company is expected to pay a dividend per share of $1.1 for the coming year....
XYZ company is expected to pay a dividend per share of $1.1 for the coming year. It expected that company can maintain a dividend growth of 15% a year for the next 3 years. Given an in-depth analysis, it comes to term that the growth rate will decline to 5 per cent per annum and remains at that level indefinitely. The required rate of return on the shares is 12 per cent per annum. Calculate the current share price. If...
Suppose a stock will pay $10 per share dividend in one year's time. The dividend is...
Suppose a stock will pay $10 per share dividend in one year's time. The dividend is projected to grow at 8% the following year, and then 4% per year indefinitely after that. To clarify, dividend at beginning of year 1 (that is, one year from today) is: $10 Beginning of year 2 (2 years from today) is: $10 * 1.08 Beginning of year 3 (3 years from today) is: $10 * 1.08 * 1.04 and a 4% rate of growth...
Dvorak Enterprises is expected to pay a stable dividend of $7 per share per year for...
Dvorak Enterprises is expected to pay a stable dividend of $7 per share per year for the next 8 years. After that, investors anticipate that the dividends will grow at a constant rate of 3 percent per year indefinitely. If the required rate of return on this stock is 12 percent, what is the fair market value of a share of Dvorak?
Stuard products currently pay a dividend of $2 per share and this dividend is expected to...
Stuard products currently pay a dividend of $2 per share and this dividend is expected to grow at an 8 percent annual rate for 3 years, then at a 10 percent rate for the next 3 years, after which it is expected to grow at a constant rate of 5 percent rate forever. What value would you place on the stock if an 18 percent rate of return were required on the stock?
XYZ company is about to pay a dividend of $6.59 per share. The dividend is expected...
XYZ company is about to pay a dividend of $6.59 per share. The dividend is expected to grow at a rate of 16 percent annually. If the current cum-dividend stock price of XYZ is $89.01, what is the required rate of return?
11. The current market price of a share of common stock is $67.50. The cash dividend...
11. The current market price of a share of common stock is $67.50. The cash dividend paid now is $5 [ D0 ]. The dividends are expected to grow at a constant rate of 8% per year for ever. The required rate of return on the common stock is 16%. Then the following is true according to the constant dividend growth model:     a. the stock is underpriced   b. the stock is overpriced   c. the stock is correctly priced